First Audit Report of CAG (Indirect Taxes-GST) for the year ended March 2019
GST
Dated:- 1-8-2019
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Document 1
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Report of the
Comptroller and Auditor General of India
for the year ended March 2018
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INDIAN
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NAUDIT AND ACCOUNTS
DEPARTMENT
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Dedicated to Truth in Public Interest
Union Government
Department of Revenue
(Indirect Taxes – Goods and Services Tax)
Report No. 11 of 2019
Report of the
Comptroller and Auditor General
of India
for the year ended March 2018
Union Government
Department of Revenue
(Indirect Taxes – Goods and Services Tax)
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iendliness of the registration module
Findings accepted and corrective action taken or initiated
54
55
3.11
Conclusion on Registration Module
56
3.12
Introduction
57
3.13
Shortcomings in updating ECL
58
3.14
3.15
Non-implementation of service requirements of banks
Non-reconciliation with accounting authorities
60
61
3.16
62
3.17
3.18
3.19
Non-acceptance of payment where payment details were
received after expiry of Challan
System level controls found absent in reconciliation files
Payment through debit/credit cards not provided in the GST
IT system
Display of messages was not in sync with the actual status of
the transaction
Conclusion on Payment Module
3.20
3.21
The Provisions for IGST Settlement
63
83
62
63
663
64
64
Contents
Page
3.23
Duplicate records
3.24
3.22 Incomplete IGST Settlement
Incorrect computation of IGST Settlement
66
69
70
3.25 Erroneous entries in settlement reports
71
3.26
Unrealistic claims of ITC of IGST
74
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ect Taxes – Goods and Services Tax)
Preface
This Report has been prepared for submission to the President of India under
Article 151 of the Constitution of India.
The magnitude of the tax reform that GST has been, cannot be over-stated.
Elsewhere in the Report it has been noted that the efforts of all the
stakeholders, including the businesses, in transiting to this system are
appreciable. That there would be teething problems in such a major
transition is also not unexpected. The issues that remain, and that have been
pointed out in the report, should not therefore be seen by the stakeholders as
a fault-finding exercise. The gaps / shortcomings have been pointed out in the
spirit of constructive suggestions to realise the full potential of this major
reform. Issues raised in the report are consistent with the spirit of the reform
itself to relieve the consumer from the burden of cascading taxes; to make
the system as fool-proof as possible; to provide the taxpayers an IT
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asion etc., can be traced by applying
analytical tools and Al to the massive data that crores of invoices generate.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Executive Summary
Chapter I: Implementation of Goods and Services Tax (GST)
GST was rolled out with effect from 1 July 2017 with the objectives of
reducing tax cascading, ushering in a common market for goods and
services and bringing in a simplified, self-regulating and non-intrusive
tax compliance regime.
(Paragraph 1.6)
The roll out of GST has been a landmark achievement of the
Government with respect to unifying multiple central and state taxes
barring a few goods / sectors and availability of Input Tax Credit (ITC)
across the entire value chain. Multiplicity of tax rates has also been
eliminated to a large extent. The objective of roll out of single IT based
interface for taxpayer has also been achieved to some extent.
(Paragraph 1.6.2)
One significant area where the full potential of
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as per Finance Commission formula,
which is in contravention of the provisions of the Constitution of India
and the IGST Act. This also has the impact of distribution of funds to the
!!!
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
•
States on a completely different basis instead of 'Place of Supply'
concept as envisaged in the IGST Act.
(Paragraph 2.1.3)
Post implementation of GST, the Centre's revenue on goods and services
(excluding central excise on Petroleum and Tobacco) registered a decline
of 10 per cent in 2017-18 as compared to revenue of subsumed taxes in
2016-17.
(Paragraph 2.1.4)
There was a short transfer of 6,466 crore of GST Compensation cess to
the Public Account during 2017-18.
(Paragraph 2.1.5)
Returns filing
• While it was expected that compliance would improve as the system
would stabilise, all returns being filed showed a declining trend of filing
from April 2018 to December 2018.
•
The filing percentage o
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seven cases, the validations were not built-in even
though SRS was correctly framed in eight cases and the SRS provision included
a condition not prescribed in the Act in one case.
(Paragraph 3.5)
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Registration Module
System validations were not aligned to the provisions of the GST Acts and
Rules, leaving the following crucial gaps in GST Registration module:-
• System failed to validate and debar ineligible taxpayers from availing
Composition Levy Scheme.
(Paragraph 3.7.2)
•
Mandatory fields were found made optional or accepting junk values.
•
(Paragraph 3.8.1)
TDS registrations were allowed under invalid category.
(Paragraph 3.8.3)
Lack of validation of key fields in Registration (Legal Name, Type of
Business and CIN) with CBDT and MCA Databases.
(Paragraph 3.10.2)
Payment Module
The payment module, despite being in operation since 1 July 2017, was
fraught with operational defi
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of CPIN leading to non-reconciliation of GST receipts.
(Paragraph 3.15)
IGST Settlement reports
All the IGST Settlement Ledgers were not being generated due to
non-implementation of corresponding GST modules, like imports and appeals.
This, coupled with the inaccuracies in the settlement algorithm and limitation
of the GSTR-3B return in capturing all the information required for settlement,
had a bearing on the settlement of funds to the Centre and various States.
–
The incomplete IGST ledgers were partly responsible for
2,11,688 crore of IGST balance remaining unsettled during 2017-18.
(Paragraph 3.22)
Duplicate records were noticed in 6,748 cases in 5 Settlement ledgers,
leading to inaccurate settlement of 416.07 crore IGST funds for the
period from July 2017 to July 2018.
(Paragraph 3.23)
Incorrect settlement of IGST amounting to 359.46 crore during the
period from July 2017 to July 2018 was noticed because of erroneous
entries in settlement ledgers due to the alg
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nd only Disaster Recovery Plan
had been in place.
(Paragraph 3.28.1)
Lack of a systemic approach to change management, coupled with some of
the deficiencies pointed by this audit remaining unaddressed even after GSTN
reported corrective action, indicated the crucial risks existing in the
application running on the GST portal.
(Paragraph 3.29)
To sum up the IT Audit findings:
While acknowledging that GST is a completely new system being developed,
in view of its magnitude and Pan-India impact, it is all the more necessary that
due care is taken both in development and in testing of the system before roll
out. The failure to map business rules correctly and the absence of key
validations in the rolled out system points to inadequacies in the functioning
of GSTN.
The issues brought out in IT audit also pointed towards the need for GSTN to
re-examine prioritisation of development of various functionalities,
strengthen their root cause analysis and testing process to ensure
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ciencies that need to be addressed by the
department.
(Paragraph 4.1)
Some of the audit findings on Transition Credits indicated that data /
red flags available in ACES have not been efficiently leveraged to
identify and reject inadmissible credits.
•
(Paragraph 4.7)
Non-allocation or wrong mapping of registered taxpayers carried the
risk of the returns filed/ not filed by such taxpayers not being subject
to any kind of scrutiny by the jurisdictional officer. In this highly IT
intensive environment also, Range Offices had to physically take up
problems created by an IT system for resolution.
(Paragraph 4.9.2)
• The instances of non-adherence to the provisions relating to Refunds,
pointed towards the need for expediting automation of refund
processing with proper checks and validations besides improving the
system for monitoring manual processing of refunds, till automation is
completed.
(Paragraph 4.11)
The system of payment and settlement of tax that wa
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features of the Goods and Services Tax
(GST) including GST returns mechanism and the status of implementation of
GST.
1.1
Background of GST
A comprehensive GST based on the Value Added Tax (VAT) principle was first
suggested by the Kelkar Task Force in December 2002. The introduction of
GST in India was first announced in the Union Budget 2006-07. Since then the
Empowered Committee of Ministers had worked on preparing the back
ground material for GST and the draft GST Acts. Implementation of GST
finally materialised with the Parliament passing the Constitutional
Amendment Act in September 2016, followed by the State Legislatures and
GST was rolled out with effect from 1 July 2017 (including Jammu and
Kashmir with effect from 8 July 2017).
As stated by the President of India Sri Pranab Mukherjee on the launch of
GST from the Central Hall of Parliament on 30 June 2017, “GST is the result
of a broad consensus arrived at between the Centre and the States and is a
tribute
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oms
Duty
commonly
known
as
Countervailing Duty
Special Additional Duty of
Customs.
State Value Added Tax
(VAT)/Sales Tax (except five
petroleum products and
alcoholic liquor for human
consumption)
Entertainment Tax (other than
the tax levied by the local
bodies)
Central Sales Tax (levied by the
Centre and collected by the
States)
Octroi and Entry tax
Purchase tax
• Luxury tax
Taxes on lottery, betting and
gambling
Central/State Excise duty and VAT would be continued on five Petroleum
products, which would be subject to the levy of GST whenever notified on the
recommendation of the GST Council. Tobacco products could be subjected to
both Central Excise duty and GST. Alcoholic liquor for human consumption
had been kept outside the ambit of GST.
1.2.3 Components of GST
There are three components of GST as follows: –
•
•
•
Central Goods and Services Tax (CGST) : payable to the Central
Government on supply of goods and services with
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2016,
for introduction of Goods and Services Tax in the country was passed by
Rajya Sabha on 3 August 2016 and by Lok Sabha on 8 August 2016.
Consequent upon this, the President of India accorded assent on 8
September 2016, and the same was notified as the Constitution (One
Hundred and First Amendment) Act, 2016.
The following Acts were passed for implementation of GST with effect from
1 July 2017: –
•
The CGST Act, 2017;
• The UTGST Act, 2017,
•
The IGST Act, 2017;
•
The GST (Compensation to States) Act, 2017
The above Acts were assented by the President of India on 12 April 2017 and
enacted with effect from² 1 July 2017. In addition to the above, each of the
States have also passed the SGST Act.
All the above Acts were further amended vide the CGST Amendment Act,
2018 and the GST (Compensation to States) Amendment Act, 2018, the IGST
(Amendment) Act, 2018 and the UTGST (Amendment) Act, 2018 notified on
29 August 2018 and made effective
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s per Article 279A (4), the Council will make recommendations to the Union
and the States on: –
a) the taxes, cesses and surcharges levied by the Union, the States and
the local bodies which may be subsumed in the GST;
b) the goods and services that may be subjected to, or exempted from
GST;
c) the model GST Laws, principles of levy, apportionment of GST levied
on inter-State trade supplies and the principles that govern the place
of supply (POS);
d) the threshold limit of turnover below which goods and services may
be exempted from GST;
e) the rates including floor rates with bands of GST;
f) any special rate or rates for a specified period, to raise additional
resources during any natural calamity or disaster;
g) special provision with respect to the States of Arunachal Pradesh,
Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and
h) any other matter relating to the GST, as the Council may decide.
Wh
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– Goods and Services Tax)
convert GSTN into a fully owned Government Company. Further action on
this decision was yet to be taken by the Government.
The objectives and organizational structure have been further detailed in
Chapter III of this report.
1.4.3 Cross empowerment and distribution of taxpayers
Under GST, the taxpayers have to obtain separate registration in each State
where they operate. A single challan is generated for paying all taxes of GST
(viz. CGST, IGST, SGST and UTGST) under each registration and one single
return is filed for both the central and state taxes.
In view of this dual control, the GST Acts provide for cross empowerment of
the Central and State tax officers to administer all the components of GST viz.
CGST, SGST, UTGST and IGST. The tax officers carry out administration of all
components of GST in respect of the taxpayers or specific areas allocated to
them. While the State Commercial tax departments are responsible for
administering functi
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location and type of the taxpayers,
as may be mutually agreed.
The State tax officers have been empowered * (October 2017) to grant refund
of IGST and CGST and similar instructions on the State side were also issued
empowering the Central tax officers to grant refund of SGST. The GST Council
in its 9th meeting (16 January 2017) recommended that both the Central and
3 Except for the State of Jammu and Kashmir where all the taxpayers below 1.5 crore
were allocated to the State.
4
Vide notifications No. 11/2017-Integrated Tax and No.39/2017-Central Tax, both dated 13
October 2017.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
State tax administrations shall have the power to take intelligence-based
enforcement action in respect of the entire value chain and CBIC gave effect to
this decision through a DO letter 5 issued (October 2018) to its field formations.
1.4.4 Compensation to the States for loss due to implementation of GST
The Constitution Amendme
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Section 171 of CGST Act, 2017 stipulated that any reduction in rate of GST on
any supply of goods or services as compared to pre-GST tax rates, or the
benefit of ITC, should have been passed on to the recipient by way of
commensurate reduction in the prices. The wilful action of not changing the
final price of the good or service by various means, despite the reduction in
the rate of the tax for that particular goods or services, would amount to
“profiteering”. The CGST Act, 2017 provided for a 3-tier structure for
investigation and adjudication of the complaints regarding profiteering.
• National Anti-profiteering Authority
•
Directorate General of Anti-profiteering
State-level screening committees and standing committee
Any consumer or organisation experiencing the non-reduction in the price of
the goods or services despite reduction in the rate of GST could file the
complaint with proper evidences.
Any supplier, trader, wholesaler or retailer, who could no
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nic way) bill has envisaged one electronic way
bill, to be carried by the person in charge of conveyance, providing for a
hassle free movement of goods throughout the country. The e-way bill
system, a web based solution designed and developed by National
Informatics Centre (NIC), has been introduced nation-wide for all inter-State
supplies with effect from 1 April 2018 and has been made compulsory for
movement of goods of consignment value exceeding 50,000. As regards
intra-State supplies, option was given to the States to choose any date on or
before 3 June 2018. All the States have notified e-way bill rules for intra-
State supplies, the last being NCT of Delhi where it was introduced with effect
from 16 June 2018. Different threshold limits have been fixed by different
States for generation of e-way bills for intra-state supplies.
1.5
Central Administrative Structure
The Department of Revenue (DOR) of Ministry of Finance (MOF) functions
under the overall direction and
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ese Commissionerates, there are
49 GST Appeal Commissionerates, 48 GST Audit Commissionerates and
22 Directorates dealing with specific functions such as DG (Systems) for
management of Information Technology projects and DG, NACEN for training
needs.
6 formerly Central Board of Excise and Customs (CBEC).
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
1.6
The objectives of GST
It was envisaged that GST would subsume a number of indirect taxes
presently being levied by Central and State Governments into a single tax,
thereby reducing the cascading of taxes and providing a common national
market for Goods and Services. GST was also expected to simplify the tax
regime and result in better tax compliance and a non-intrusive E tax system
due to a robust IT Infrastructure. Due to the seamless transfer of input tax
credit from one stage to another in the chain of value addition, GST was to
have an in-built mechanism in its design that would incentivise tax
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of
CGST, 22,722 crore of SGST, 47,469 crore of IGST and GST Compensation
Cess of 7,198 crore.
51.4 per cent of the taxpayers filed GSTR-3B return for July 2017 by due date
(28 August 2017). The monthly returns GSTR-1 and 2 were released on the
portal by 1 September 2017.
But changes were made to the formats of the reports. Due dates for various
key activities were postponed and GSTR-2 and 3 kept in abeyance. These
changes were due to various factors like complexity of the formats or
technical glitches on GST portal or the claimed lack of preparedness of stake
holders and further changes triggered by these changes. As a result, GST
System has remained a system still in the making even after nearly two years
of roll out with the entire return mechanism undergoing major changes.
The chart No.1 maps the objectives of the GST with the mechanisms
envisaged and their current status of implementation
8
OBJECTIVES
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
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y bills replaced
manual check posts
ACHIEVEMENT
Mostly
achieved
Mostly
achieved
Not achieved
Not Achieved
Partly
Achieved
Partly
Achieved
IMPACT
New simplified
returns yet to be
rolled out
6
Unverified ITC
Complication in
finalisation of
annual returns
Manual processes
still continuing
Avodable physical
interface with tax
officials
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
The following is the status of implementation of mechanisms envisaged
under GST, as depicted in Chart No.1.
(a)
Multiple taxes
The objective of subsuming multiple taxes has been mostly achieved with
GST subsuming 37 different central and state taxes with ITC eligible across
the value chain. Only a few goods / sectors have been kept outside GST, with
a provision in constitutional amendment to subsume the major product viz.
petroleum products as and when decided by the GST Council.
(b) Tax structure
GST ushered in a tax structure in which the same good or serv
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00
12 per cent
2500 7500
18 per cent
7500 and above
28 per cent
From the above table, it could be seen that goods or services of same nature
have been subjected to multiple tax rates.
10
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
The GST Council, through its various meetings, reviewed the slab and rate
structure from time to time. Since the inception of GST, CBIC issued 47, 30
and 9 notifications relating to changing of CGST rates in 2017, 2018 and 2019
(up to 31 March 2019) respectively. Similarly, 50, 31 and 8 notifications were
issued changing IGST rates in 2017, 2018 and 2019 (up to 31 March 2019)
respectively.
Thus, though the tax rate structure has been simplified as compared to pre-
GST tax era, there is scope for further simplification.
(c)
Returns prescribed
In GST, the taxpayers have to file a single return for all GST taxes viz CGST,
SGST, IGST and GST Compensation Cess. The basic features of the return
mechanism in GST envisaged el
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would file invoice-wise details of outward supplies made by them during the
month through GSTR-1. The details of outward supplies so furnished by the
supplier in GSTR-1 were be made available electronically to the registered
recipients through form GSTR-2A. Similarly, details of supplies relating to
composition taxpayers, Input Service Distributors and Non-Resident
taxpayers as well as Tax Deducted at Source (TDS) by Government
departments / agencies and E-commerce operators also were to be made
available electronically to the recipients. Thereafter, based on details
available in form GSTR-2A, the taxpayer was supposed to furnish form GSTR-2
after including details of other inward supplies.
The details of inward supplies added, corrected or deleted by the recipient in
his form GSTR-2 were to be made available to the supplier electronically in
form GSTR-1A through the common portal. The supplier may either accept
11
Report No. 11 of 2019 (Indirect Taxes – Goods and Servic
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supplies of Z (GSTR-1)
Verified by his recipients
Payment of taxes
Payment
Cash Ledger
by Z
ITC Ledger
Tax Liability
Register Ledger
7
With
Corrections
GSTR-1A
GSTR-2 of Z
4
3
Yes
5
Auto-populate
Correction
accepted
by Y
No
GSTR-3 of Z
Difference added
to Tax liability of Z
8
Monthly returns
consolidation in
Annual return
NB: Similarly details from GSTRS-4, 5, 6, 7 and 8 representing supplies from
composition taxpayers, Non-Resident taxpayers, Input Service Distributors,
Tax Deducted at Source (TDS) by Government departments / agencies and
TDS by E-commerce operators respectively were also to auto-populate GSTR-
2A of recipient. Only GSTR-1 has been shown in the above flow chart for
illustrative purposes.
While this was the system originally envisaged and designed, the due dates of
these key returns were postponed, a fortnight before launch of GST quoting
lack of familiarity of the trade and apprehensions expressed with regard to
the system readi
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mendment
was passed, the Empowered Committee of Ministers (ECM) had started
working on the model GST Acts and business processes and the first model
GST Act was placed in public domain in June 2016. The Business Process
Documents on Registration, Payment, Registration and Refund were also
placed in public domain during April 2015 to October 2015. The GST model
laws were prepared by Nov 2016 and Acts passed by Parliament in April 2017.
The Draft Rules on Returns, Registration, Payments, Refunds, Invoice initially
prepared in Sep 2016 and the next version of draft rules duly adding ITC,
Transition, Valuation and, Composition were finalised in March 2017 and
approved by Council in May 2017. The draft forms (Invoice, Payments,
Registration, Refund, Return and Mismatch) were finalised in Sep 2016 and
further set of draft forms covering Composition, ITC, Payment, Refund and
Registration were finalised in May 2017. Final rules and forms were notified
on 19 June 2017.
GST is a m
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ve been kept in abeyance. As a
result the key mechanism of system verified ITC and invoice matching was
not achieved. As on date ITC as reported by the taxpayer in the summary
return is used for further transactions.
In July 2018, i.e. one year after introduction of GSTR-3B putting GSTRs-2 and
3 on hold, the GST Council announced that a new simplified return
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
mechanism would be implemented from 1 January 2019. The new return
mechanism is yet to be finally rolled out (June 2019), which is two years after
introduction of GSTR-3B as a temporary measure. With the delay in framing
a revised return mechanism, the summary return GSTR-3B, which is more of a
self-declaration continued since the roll out of GST instead of the system-
generated return based on verified invoices.
The processes and returns kept in abeyance have been shown in red colour in
the flow chart No.3 depicting current status of returns.
Chart
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rified ITC
ITC claimed by the taxpayers was not system verified and ITC ledger was
getting auto populated based on un-verified ITC flowing from self-assessed
summary monthly return (GSTR-3B) filed by the taxpayers.
• No self-regulating system
As ITC and monthly returns were not based on system-verified details, the
self-regulating system was not in place. Further, in the originally envisaged
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
returns mechanism, it could be verified if the suppliers have paid their overall
tax liability as emanating in GSTR-3 from the matched outward and inward
supplies, as taxpayer had to furnish payment details while filing GSTR-3. No
such check could be in-built into the summary self-assessed GSTR-3B.
Manual check of details in returns
In the absence of a self-regulating system, data analytics and Business
Intelligence tools were being used by the tax departments to cross check data
available in GSTRs 1 and 3B as
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ise summary of outward and inward
supplies.
The discontinuation of GSTR-2 and 3 has complicated the process of filing
annual returns as very limited data from GSTR-2A and 3B would auto
populate the annual return. The taxpayers are required to tally the data
available in GSTR-1 being filed with their GSTR-3B before finalising the annual
return.
It was originally envisaged in the GST Acts that the annual return pertaining
to a financial year would be filed by the following 31 December. The due date
for annual return of 2017-18 has been extended from time to time and the
date has been finally extended to 31st August 2019.
It was envisaged in the GST law that any unmatched credit in the monthly
returns should be rectified only up to the filing of annual return or filing of
return for the month of September of the financial year whichever is earlier.
The last date for claiming ITC on invoices relating to Financial Year 2017-18
originally was September of the financial year or
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ms
to plug revenue leakages through data analytics and Business Intelligence (BI)
tools. Though envisaged as a self-correcting system, the Ministry has held
that due to difficulties to trade and industry, the system was being fine-
tuned.
Thus, the self-correcting system, as originally envisaged, was not in place
and this led to continuation of avoidable assessee-tax officer physical
interface instead of IT based interface. This goes against the objective of
reducing the avoidable physical interface to minimum, if not eliminated
completely.
(f) Other envisaged self-policing mechanisms
•
Non-implementation of reverse charge mechanism for supplies by
unregistered person
Generally, the supplier of goods or services is liable to pay GST. However, in
specified cases, the liability to pay tax is on the recipient of supply of goods or
services instead of the supplier, which is called the reverse charge. The GST
Acts provide that wherever a registered person procures sup
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ed before further changes in this mechanism are
made.
Tax Deduction at Source
Section 51 of the CGST Act, 2017, provided for Tax Deduction at Source (TDS)
by the Government departments, Local authority and the Governmental
agencies. TDS is applicable for payments above 2.5 lakh.
TDS provisions were postponed from time to time. The reasons for this
postponement, as mentioned in the 18 th GST Council meeting minutes, were
lack of preparedness of the Government agencies to deduct TDS and the
need for TDS to be linked to fund settlement mechanism of respective States.
It was also pointed out that since GSTR-2 was not getting filed, the TDS
benefit could not be passed on to the taxpayer.
TDS provisions were finally made operational from 1 October 2018. Tax
deductors were supposed to file a return by 10th of the succeeding month.
However, the due date for this return for the months of October 2018 to
December 2018 was extended 10 to 31 January 2019 stating that certain
operat
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purpose as this whole
process of TDS.
9
Notifications No. 10/2018-Central Tax (Rate) dated 23 March 2018, No. 12/2018-Central
Tax (Rate) dated 29 June 2018 and No.22/2018-Central Tax (Rate) dated 6 August 2018.
10 Order No.4/2018-Central Tax dated 31 December 2018.
17
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
(g)
Partially rolled out GST Portal
11
For implementing the project, GSTN prepared Project Management Plan in
which various use-cases ¹¹ and functionalities of different modules were
planned with timelines for implementation. The implementation of GST
portal was conceived to be implemented in three phases as discussed below.
Phase-I
Phase-I consisted of taxpayer registration, taxpayer registration approval,
Invoice upload, Payments, Return, Input Credit reconciliation, IGST
Settlement, MIS Reports, System Administration, Security Management and
Help Desk.
The functionalities for this phase of the project, as envisaged in the Softwar
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ing ¹² (UAT) environment over a period
starting from January 2017 to March 2019. SRS for most of these modules,
however, were signed off between January and September 2018 and SRS of
two modules (MIS and Audit) was yet to be signed off. 103 use cases of this
Phase were to be taken into UAT environment by October 2018. However, we
noticed that only 87 use cases were implemented as of January 2019.
These delays had an impact on implementation of GST which could be clearly
seen in case of the refund module as detailed below: –
11
12
A use case is a list of actions or event steps typically defining the interactions between a
role and a system to achieve a goal.
UAT is the last phase of the software testing process. During UAT, virtual software users
test the software to make sure it can handle required tasks in real-world scenarios,
according to specifications.
18
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
The module for processing the refund of
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ansferred online to the tax officer, as
originally envisaged, was made available on the GST portal for one category
of refunds (viz. Exports of services- With payment of Tax) in October 2017
and for the remaining seven categories ¹³ during August to October 2018. The
back office module relating to online processing of refunds was not ready
(May 2018).
13
As per the phase wise implementation plan of GSTN, the crucial module of
refund was originally planned for phase II. On the recommendation of the
GST Council and the instructions of the Gol, the work on Refund functionality
was commenced along with Phase I. As the module was not ready, however,
manual processing of refunds continued.
The automated refund application which would be made
available online to tax officer, was introduced in most of the
cases more than one year after the roll out of GST, while the
processing of refunds was still being done manually except
refund of IGST paid on export of goods. This poi
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of return, registration, payment and e-way bill data to identify
anomalies in database and comparison of data like GSTR-1, GSTR-3B, e-way
bill data to find out ITC mismatch and other anomalies. As per Request for
Proposal (RFP), the execution plan of BI was to be finalised based on the
requirement for reports. GSTN was in the process of identifying the required
Bl reports as of October 2018 and hence, the execution plan was under
preparation stage only, with no timelines finalised for implementation.
Response of GSTN to partial roll out of GST portal and our comments
When we pointed out (November 2018) the status of phase-wise
implementation of GST portal, GSTN stated (January 2019) that GST was to be
rolled out from July 2017 and there were changes subsequent to signing-off of
SRS in December 2016. Therefore, implementation of the functionalities of
Phase-I was re-prioritised. For both Phases I and II, in view of the frequent
changes in rules, notifications and decisions
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within the broad timelines for
the activities given by the GST Council / the Government.
20
20
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
GSTN in its response endorsed by DoR (June 2019) stated that the
preparation of IT Business Processes of Registration, Payment and Return had
started on the basis of draft Business Process Document and Model GST Acts,
which were provided during April to October 2015 and June 2016. Thereafter,
GST Rules were placed in the public domain in December 2016 and January
2017. These were not complete rules and the same were published for
comments of the public. After receiving feedback from the taxpayers and tax
consultants, and other stakeholders, these rules had undergone changes.
Therefore, significant changes in the processes that were provided in 2015
and June 2016 were inevitable. Though GSTN had done proper planning and
monitoring mechanism were in place, however, due to evolving nature of
Law and rules there has b
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involved in its development. The implementation and progress of GST was
also being regularly monitored by DOR, which was aware of the timelines for
GST roll out. Inadequacies in the system show that there was a failure in not
just system design but its testing by GSTN and acceptance by the tax
departments before a pan-India roll out. As such, the executive who have
endorsed the system as developed is equally accountable for the problems
being faced.
1.6.3 Conclusion and Recommendations:
The implementation of GST in India is perhaps the biggest tax reform in the
world and the effort made by all the stake holders, including the Central
Government, the State Governments, DOR, CBIC, GSTN, MSP and those of
businesses which were ready, that made it possible is commendable. The
advent of GST has provided a common national market for goods and
services and paved the way to reduce tax cascading by providing ITC across
the value chain of supply of all goods and services barring a
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not fully achieved
Recommen
dation
Need to simplify tax compliance by introducing simplified invoice matching
and return forms duly using technological solutions
The complexity of return mechanism and the technical glitches resulted in
roll back of the originally envisaged system-verified ITC based on invoice
matching, using GST returns (GSTRs-1, 2 and 3). The summary self-assessed
GSTR-3B return, introduced as a stop-gap measure has continued. Thus the
system as in vogue today is an unverified return, without an IT based
checking of invoices and is prone to ITC frauds. The self-correcting system, as
originally envisaged, is not in place and this has led to continuation of
avoidable assessee-tax officer physical interface instead of IT based interface.
Without invoice matching and auto generation of refunds, assessments etc.
on the whole, the envisaged GST tax compliance system is non-functional.
The settlement of IGST to the States also is impacted as the IGST settleme
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and
Rules and was fraught with operational deficiencies and system design
deficiencies in certain areas as brought out in our IT audit findings reported in
Chapter III of this report.
The system of payment and settlement of tax that was envisaged for GST was
based on one hundred per cent invoice-matching and availment of input tax
credit, as well as settlement of IGST on the basis of invoice-matching.
Neither is possible as of now, as an invoice-matching system has not kicked-
in. Invoice-matching is the critical requirement that would yield the full
benefits of this major tax reform. It would protect the tax revenues of both
the Centre and the States, it would lead to proper settlement of IGST and
would minimise, if not eliminate, the tax official-assessee interface. In fact,
even “assessment” in the sense understood in the manual system may no
longer be necessary (returns themselves can be generated by a system that
matches invoices); and cases of evasion etc., c
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Table No. 2: Resources of the Government of India
(in crore)
2016-17
Tax component
(Pre GST)
2017-18
(Post GST)
A. Total Revenue Receipts
22,23,988
23,64,148
i. Direct Tax Receipts
8,49,801
10,02,738
ii. Indirect Tax Receipts including other taxes
8,66,167
9,16,445
iii. Non-Tax Receipts
5,06,721
4,41,383
iv. Grants-in-aid & contributions
1,299
3,582
B. Miscellaneous Capital Receipts
47,743
1,00,049
C. Recovery of Loans and Advances
40,971
70,639
D. Public Debt Receipts
61,34,137
65,54,002
Receipts of Government of India (A+B+C+D)
Source: Union Finance Accounts of respective years.
84,46,839
90,88,838
The overall receipts of the Union Government increased by Rs.6,41,999 crores
in 2017-18 over 2016-17. The share of Indirect taxes in total revenue receipts
remained almost constant, accounting for 38.76 per cent in 2017-18, as
compared to 38.95 per cent in 2016-17. The Indirect taxes registered a
growth of 5.80 per cent in 2017-18 over 2016-17, while
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from table 3 above, the CGST revenue was short of the
estimates and the provisional figures of 2018-19 also indicate that CGST
revenue did not meet the target of RE which is reduced by One lakh crore
rupees as compared to original BE of CGST. The details of IGST are discussed
in succeeding para.
2.1.3 Accounting and treatment of IGST
IGST, a levy on inter-state supplies and import / export of goods and services,
is levied and collected by the Government of India and apportioned between
the Union and the States as prescribed in the IGST Act. IGST is initially
collected under Major Head 0008 in Consolidated Fund of India and then
once taxpayer uses this as ITC to pay CGST / SGST / UTGST on further supply
(here in after referred to as ITC cross utilisation), the amount is transferred
from IGST to relevant head of account viz. CGST / UTGST under CFI or to SGST
head of State Government concerned. Also, when ITC of IGST is rendered
ineligible for further utilisation for any rea
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1
IGST on Import /
Export of Goods
and Services
0008-02
IGST on Domestic
Supply of goods
and services
1,80,485
(in crore)
Total
2,02,141
3,82,626
ITC Cross utilization
Nil
(-)1,45,350
(-)1,45,350*
Apportionment of IGST
Nil
(-)25,587
(-)25,587*
Balance after settlement
2,02,141
9,547
2,11,688
and apportionment
Advance apportionment
Nil
(-)35,000
(-) 35,000
Balance after advance
2,02,141
(-) 25,453
1,76,688
apportionment
Share assigned to the
States (Devolution)
(-) 67,998
Nil
(-)67,998
1,34,143
(-)25,453
1,08,690
*Correctness of IGST settlement and apportionment are subject to the
inaccuracies and deficiencies in IGST settlement / apportionment algorithm,
identified as part of findings of IT audit of GSTN, have been reported in
Chapter III of this report.
As could be seen from table No.4, against a collection of 1,80,485 crore
under Sub Major Head 02 (IGST on Domestic Supply of goods and services),
1,45,350 crore was transferred out of IG
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adjusted in ten equal
instalments against regular settlement due to the States in 2018-19.
After this advance settlement, there was a balance of Rs.1,76,688 crore left in
IGST at the end of the year. Gol has devolved 67,998 crore under IGST to
the States/UTS adopting Finance commission formula for devolution of
central taxes. Devolution of IGST is in contravention of the provisions of
Constitution of India as Article 270 (1) of the Constitution excludes duties
levied under Article 269 (A) (i.e. IGST) from list of taxes and duties to be
distributed between the Union and the States. When the Ministry sent the
accounting procedure for IGST to CAG for approval, the procedure for
advance apportionment of IGST to the Centre and the States, as
recommended by the GST council was agreed to by the CAG. But the
procedure for devolution was not agreed to by the CAG stating that
devolution of IGST was against the provisions of Constitution of India.
Further, devolution of funds using
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ement and refund is being apportioned provisionally.
The reply of the Ministry is silent on the aspect of corrective action taken by
it for setting right the IGST amount devolved during the year 2017-18. Steps
like amendment of Section 49 (5) of IGST Act providing for faster utilisation of
IGST and provisional settlement of IGST balance during 2018-19 will only
impact the settlement of IGST from 2018-19 onwards. The reply of the
Ministry was also silent on the aspect of impact on state revenues due to
adoption of Finance Commission formula for distribution of IGST balance.
It would be pertinent to mention here that in CAG's report on Account of the
Union Government (Report No.2 of 2019), tabled in Parliament on 12
28
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
February 2019, it was advised that Gol needed to account for its share
correctly and devolution should take place from Central share only and that
the remaining 50 per cent should be apportioned
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as payable in
March itself in case of Central Excise and Service Tax. Hence for a reasonable
comparison of revenue growth of indirect taxes, we considered the Centre's
March 2018 GST revenue collected in April 2018 also as shown in column 4 of
table No.5 given below: –
Table No.5: Comparison of indirect tax revenue on goods and services
(in crore)
Tax components
2016-17
Year
2017-18
2017-18*
Central Excise on Goods other than
Petroleum and Tobacco
1,16,901
9,034
Service Tax
2,54,499
81,229
9,034
81,229
Central GST Taxes (CGST and UTGST)
0
2,04,896
2,37,075
IGST**
0
1,08,690
1,08,690
CVD and SAD of Customs
1,51,927
43,092
43,092
Central Sales Tax
Subsumed items revenue
495
5,23,822
102
4,47,043
102
4,79,222
Revenue difference for GST subsumed
items in 17-18 over 18-19
-76,779
-44,600
Revenue difference for GST subsumed
-15
-10
items in 17-18 over 18-19 (per cent)
* Including March 2018 GST collected in April 2018
** year-end balance reta
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ance Accounts 2017-18, it was
noticed that there was a short transfer of Rs.6,466 crore of Compensation Cess
to the Public Account. It was further noticed that as per the agreed
accounting procedure, GST Compensation Cess should be transferred to the
Public Account by debiting major head 2047-Other fiscal services, Minor
Head 797-Transfer to reserve fund. However, as per the Finance Accounts
2017-18, no such entry was found in the major head 2047.
The reasons for the same were called for (February 2019) from the Ministry
and their reply was awaited.
2.1.6 Transition Credit, Refunds and Cost of collection
The Statistics on (a) Transitional credits, (b) Refunds claimed by taxpayers,
processed and pending and (c) Cost of collection have not been provided by
the Ministry. Hence we could not analyse the same and include in this report.
2.2 GST Registrations
2.2.1 Pan-India GST Registrations
The category-wise registrations under GST have been given in table No.6
below:-
Tabl
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d from pre-GST regime, accounting for around 50 per cent,
while balance were new registrations.
The following chart No. 5 depicts the distribution of normal taxpayers and
composition taxpayers across the top 16 States/Union Territories (UTS),
constituting 90 per cent registration under these two categories: –
Chart No.5 Normal Vs. Composition taxpayers
Normal Taxpayers Vs. Composition Taxpayers
(16 States/UTS covering 90% of registrations in these two categories)
1.12
0.91
0.19 1.12
13.64
0.80 1.61
11.00
8.54 8.53
7.20 7.01
5.76
5.45
0.25
0.65
0.58 0.46 0.92
0.49 1.12
■▬▬▬▬▬▬4.193.42 3.13 3.00 2.99 2.88 2.76 2.17
8.83
Haryana
Madhya Pradesh
Telangana
Punjab
Bihar
Kerala
Andhra Pradesh
Odisha
Others
1.89
31
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
2.2.2 Distribution of normal taxpayers
The
distribution of Graph No.1: Distribution of normal taxpayers
normal taxpayers across
India as o
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n (9.2 per
cent) and Maharashtra (8.9
per cent). Fifteen States/UTS
figured in less than one per
cent category.
Composition taxpayers
Below 1%
Between 1-2%
Between 2-5%
Between 5-10%
Over 10%
Source: Statistical data obtained through GSTN reports as
on 28 February 2019
32
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
2.3
GST Return filing pattern
2.3.1 Filing pattern of GSTR-1 and 3B
The trends of filing of GSTR-1 and 3B as on 28 February 2019 for the period
from April 2018 to December 2018, as compiled from the summary reports
shared by GSTN, have been depicted in table No.7 : –
Table No.7: – Filing pattern of GSTR-1 and 3B
Return
Туре
GSTR-1
GSTR-3B
Due for
Months
filing
Returns
filed
Return
filing
per cent
Due for
filing
Returns filed
as on 28 Feb
Return
filing
Returns
filed
Per
cent
by
filed by
2019
per cent
due date
due date
April'18
44,96,316
27,28,772
61 88,17,798
76,94,460
87
56,38,813
64
M
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pril to December 2018. Thus, while it was expected that
compliance would improve as the system would stabilize with passage of
time, it was seen that there was no improvement in filing of GSTR-3B by due
date.
33
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Chart No.6: Filing of GSTR-1 and 3B for April to December 2018
90%
87%
86%
85%
84%
83%
85%
83%
83%
80%
79%
80%
75%
70%
76%
64%
65%
63%
62%
60%
61%
59%
55%
72%
68%
59%
58%
58%
66%
65%
64%
61%
63%
58%
57%
50%
Apr-18
May-18
Jun-18
GTR-1 Return Filing %
Jul-18
Aug-18
Sep-18
GSTR-3B Return Filing %
Oct-18
Nov-18
-GSTR-3B % filed by due date
Source: Statistical data obtained through GSTN reports as on 28 February 2019
•
•
Dec-18
The filing percentages of GSTR-1 returns were throughout less in
comparison to the corresponding filing of GSTR-3B returns during the
period April 2018 to December 2018. The introduction of GSTR-3B
resulted in filing of retu
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As could be seen from table No.7
against 45 lakh and 47 lakh taxpayers due to file GSTR-1 for April and May
2018 respectively, only 27 lakh taxpayers filed these returns. But for the
34
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
•
month of June in which taxpayers with turnover below 1.5 crore were
also due to file returns (i.e. quarterly returns), the total taxpayers due to
file GSTR-1 increased to 93 lakhs against which GSTR-1 was filed by 70
lakh people. Similar trend could be seen in the next two quarters also.
Quarterly hike in filing rates of GSTR-1 might happen either
due to (i) small players being better compliant to filing
GSTR-1 as compared to those with turnover above
1.5 crore or (ii) due to those with turnover above
1.5 crore also filing quarterly return instead of monthly
returns.
Ministry was requested (April 2019) to examine the reasons for this trend
and to provide break up of taxpayers with turnover above and below
1.5 crore
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0%
Assam
Jharkhand
West Bengal
GSTR-3B: Dec-18
Odisha
48%
Chhattisgarh
Madhya
Pradesh
Gujarat
Daman and Diu
Dadra
and Nagar
Haveli
Maharashtra
Karnataka
Goa
Lakshadweep
37%
33%
Kerala
Tamil Nadu
Puducherry
Andaman and Nicobar Islands
Telangana
Andhra Pradesh
-GSTR-1: Dec-18
GSTR-1: All India Average of Dec-18
GSTR-3B: All India Average of Dec-18
Source: Statistical data obtained through GSTN reports as on 28 February 2019
The filing of GSTR-1 across the country or the national average (returns filed
as a percentage of returns due to be filed) stood at 65 per cent for the month
of December 2018. Highest filing was noticed in Punjab (82 per cent),
followed by Gujarat and UT of Chandigarh (79 per cent). Amongst the General
Category States, the filing of GSTR-1 was below the all India average in Orissa
(48 per cent), Bihar (50 per cent), Jharkhand (54 per cent), Chhattisgarh (56
per cent), Telangana (59 per cent), Goa (60 per cent), Karnataka (61 per ce
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period from April 2018 to
December 2018, have been given in chart No.8 below (corresponding
statistical details in Appendix-IV).
Chart No.8: Filing of GSTR-4 as on 28 February 2019
86%
85%
85%
84%
83%
82%
81%
80%
79%
78%
77%
76%
Jun-18
82%
Sep-18
78%
Dec-18
Source: Statistical data obtained through GSTN reports as on 28 February 2019
While the filing of returns by composition taxpayers appeared to be better
than the return filing rate of normal taxpayers (i.e. GSTR-1) and almost at par
with filing of summary return (i.e. GSTR-3B) by normal taxpayers, Ministry
was required to examine reasons for decline in filing of GSTR-4.
The State wise filing rate of GSTR-4 for the quarter ending December 2018, as
on 28 February 2019 has been given in chart No.9 below:-
36
40%
50%
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Chart No.9: State wise filing of GSTR-4 for December 2018
GSTR-4 (Quarterly) Statewise Filing Percentage Vs. All India Average
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iling rates for Telangana (68 per
cent), Maharashtra (70 per cent) and Tamil Nadu (71 per cent) were below
the national average of 78 per cent. While the filing of GSTR-4 in most of the
Special Category States was below national average, J&K (76 per cent),
Himachal Pradesh (84 per cent) and Uttarakhand (80 per cent) registered
above national average filing rates.
2.3.4 GSTR-5, 5A and 6
GSTR-5 is a monthly return to be filed by Non-resident taxpayers / Casual
taxpayers. GSTR-5A is to be filed by those providing Online Information and
Database Access or Retrieval services (OIDAR) from outside India to non-
taxable person in India. GSTR-6 is filed by Input Service Distributor (ISD)
giving the details of input tax credit received and distributed.
The trends of filing of GSTR-5, 5A and 6 as on 28 February 2019 for the period
from April 2018 to December 2018 has been given in chart no.10 below
(corresponding statistical details in Appendix-IV).
37
37
85%
Report No. 11 of 20
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tegory have been
analysed and any action taken based on such analysis. Similarly analysis done
or action taken in respect of filing of GSTR-6 by ISDS, which was also around
50 per cent, have also been sought from the Ministry. Reply was awaited
(June 2019).
2.4
Conclusion
Revenue analysis
.
The growth of indirect taxes slowed down to 5.80 per cent in 2017-18
over 2016-17, while this growth rate was 21.33 per cent during 2016-17.
Post implementation of GST, the Centre's revenue on goods and
services (excluding Central Excise on Petroleum and Tobacco) registered
a decline of 10 per cent in 2017-18 as compared to revenue of
subsumed taxes in 2016-17.
Gol resorted to devolution of IGST year-end balance to the States as per
Finance Commission formula, which is in contravention of the
provisions of the Constitution of India and the IGST Act. This also has
the impact of distribution of funds to the States on a completely
38
Report No. 11 of 2019 (Indirect Taxes – Goods and
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d be used to verify details given in
GSTR-3B or to arrive at turnover.
39
Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Chapter III: Planning and Implementation of GST IT Project
This chapter deals with the results of our IT Audit of GSTN covering
Registration and Payment modules and IGST settlement reports.
3.1
Introduction
GST has envisaged integration of tax administration across the country, which
required a robust IT backbone. GSTN was formed to provide common and
shared IT infrastructure and services to the stakeholders 14 for the
implementation of GST. The main objectives of GSTN included : –
.
To assist and engage with various stakeholders in preparing IT and
communications related infrastructure for smooth roll out of any IT
driven initiatives and other e-governance initiatives of the
Government or any department or agency of the Government,
specifically for the roll out of the GST;
To provide for smooth transitioning of the current indirec
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Board of Directors of the
Company (the Board) should have a minimum of two and a maximum of 14
Directors. The Chairman of GSTN should be nominated through a joint
approval mechanism of the Central Government and the State Governments.
14 Finance departments of Government of India and State Governments, taxpayers, CBIC,
State Tax Authorities, Principal Chief Controller of Accounts (PCCA), State Treasuries,
Reserve Bank of India and authorised banks.
15
Tamilnadu, Kerala, Andhra Pradesh, Karnataka, Maharashtra, Goa, Haryana, Sikkim and
Meghalaya.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
The Board would appoint a Chief Executive Officer (CEO) for managing the
business of the company, subject to the control and supervision of the Board.
Under the present organisational setup, the CEO was being assisted by
Executive Vice Presidents (EVP) and Senior Vice Presidents (SVP) looking after
different functions of the company.
The strategic control of the
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the draft documents were made available well before roll out of GST.
Given the criticality of the IT infrastructure, which was to be the backbone of
GST, GSTN was formed in March 2013 itself. The year wise expenditure on
GSTN in each of these years, up to 2018-19 is as follows:
Table No.8 : Year-wise expenditure on GSTN
Year
Actual Expenditure (* in crores)
2013-14
3.04
2014-15
12.29
2015-16
48.07
2016-17
69.59
2017-18
544.07
2018-19
427.37
GSTN has incurred an expenditure of 133 crore till March 2017.
GSTN was able to ensure that the GST IT system was up and running with
some basic features on the date fixed for roll out viz. 1 July 2017. It was
also able to roll out form GSTR-3B in a very short time. Therefore, the
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
shortcomings and glitches in the system cannot be ascribed to short notice
before start. Proper planning of systems that would be flexible enough to
adjust for changes (which ar
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audit of receipts under Section 16
of CAG's (DPC) Act, 1971. We initiated the first IT audit of GSTN in May
2018, the details of which have been given in the subsequent paras.
3.4.2 Scope of IT audit
As on 31 December 2017, when we started planning the IT audit, 50 per cent
of the functionalities planned for Phase I and 12 per cent of the
functionalities planned for Phase II were completed. The status of
implementation of various modules in Phase I had been detailed below:-
Table No.9: Details of implementation of modules in Phase-I
as on 31 Dec 2017
Functionalities
planned
Modules (grouped)
In Production as
on 31 December
Percent
completed
2017
Registration
48
30
63
Payment
10
10
100
Returns#
37
17
46
Reports and Stand alone
89
35
39
Total of Phase I
184
92
50
# Included IGST Settlement Reports, which were completed by September 2017
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
As could be seen from table No.9, Registratio
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overed in this
audit.
3.4.3 Audit objectives
The main objectives of this IT audit were to assess whether the IT modules
for the taxpayer Registration, GST Payment and IGST settlement,
implemented by GSTN, were in line with the provisions of the Acts and Rules
governing the GST regime and the SRS.
3.4.4 Audit Methodology
We test checked the aspects of Registration, GST Payment and the IGST
settlement reports in operation as on 1 May 2018.
We conducted (May 2018) an entry conference with the GSTN team to
discuss our audit plan and programme followed by discussions, presentations
and walkthrough to understand the business process and the flow of
information through the GST IT System. We also received feedback from
some stakeholders of the GST IT System, namely Principal Chief Controller of
Accounts (PCCA), Confederation of Indian Industry (CII) and VAT Department
of Delhi Government.
Audit testing of important forms and functionalities as envisaged in the
relevant Acts a
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ed in January 2019 have been
suitably incorporated in this IT audit report. The replies given by GSTN were
also verified again in January 2019 and the results of the verification duly
included in this report. The findings of this IT audit were brought to the
notice of the Ministry in March 2019 and the reply of the Ministry forwarding
the response of GSTN was received in June 2019. The replies have been duly
incorporated in the report.
3.4.5 Audit Criteria
Sources from where we derived the audit criteria for this IT audit included
the Constitutional provisions related to GST; relevant provisions of the CGST
Act, the IGST Act, the UTGST Act, the SGST Acts and their associated rules and
regulations, notifications of the tax authorities like CBIC, relevant Business
Process Documents and SRS. For ease of reference, we quoted only CGST Act
/ Rule provisions but the provisions quoted and findings emanating
therefrom would be relevant for similar provisions of SGST / UTGST / IGS
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ases (Appendix-V), the key validations/functionalities as
existing in the rolled out modules were not found aligned to the
applicable provisions. Of these 16 cases, the required validation
was not included in the Software Requirement Specification (SRS)
itself in seven cases, the validations were not built-in even though
SRS was correctly framed in eight cases and the SRS provision
included a condition not prescribed in the Act in one case.
Audit findings on Registration module, Payments module, IGST settlement
reports, Business Continuity and Change Management have been given in the
following four parts.
Part A: Registration Module
3.6
Introduction
In the GST regime, registration has been made fully online and any legal
person wishing to register would have to access the GST IT system for the
same. While applying for a new registration, the applicant has to first fill
Part-A of the application form, which consists of Legal Name, Permanent
Account Number (PAN) as issue
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he Rules. Detailed audit findings have been
given below:-
3.7
Failure to validate and debar ineligible taxpayers from availing
Composition Levy Scheme (CLS)
3.7.1 Same PAN holder found under CLS as well as normal taxpayer
The key conditions for a registered person to opt for CLS under Section 10 of
CGST Act were: –
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
(i) The aggregate turnover, on all India basis against the taxpayer's PAN,
in the preceding financial year should not exceed the prescribed
amount (one crore at the time of this audit).
(ii) Multiple registrations under the same PAN could opt for CLS only if all
such registrations opted for the scheme.
(iii) The option availed for CLS would lapse with effect from the day on
which the aggregate turnover during a financial year exceeded the
prescribed limit.
Test check by Audit revealed that the system validations were not adequately
mapped to the above provisions of the Act as detailed below
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further replied (June 2019 through DoR) that as the migration process
was not completed before the new taxpayers were allowed to opt in for
composition, the validation was not implemented at that point of time. They
reported completion of corrective action regarding 168 PAN holders
registered under CLS as well as Normal taxpayers for different business
verticals, which remains to be verified by Audit.
GSTN reply could not be accepted since audit was conducted more than one
year after the rollout of GST. Further, this issue was noticed in some of the
registrations that happened even in July 2018. By that time, validation issues
if any due to migration should have been rectified by GSTN. The persistence
of such issues remaining in the application/data even after intimation of
16 Shard-1 database consisting of Jammu & Kashmir, Delhi, Nagaland, Mizoram, Jharkhand,
Madhya Pradesh, Dadra and Nagar Haveli, Goa, Pondicherry and Other Territory
(Code-97).
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ese changes were expected to be
implemented by June 2019.
GSTN, in their reply endorsed by DoR (June 2019) cited the following reasons
as to why validation on the PAN based cumulative turnover was not tenable
at that point of time:
•
•
The turnover limit fixed for composition scheme kept on changing
The criterion to opt in for composition under VAT or Central Excise
being different in comparison to GST
Non-availability of the Return data based on PAN in respect of
migrated taxpayers in the system
GSTN informed that the validations were hence kept in abeyance and have
been implemented during 2018-19.
The above reply is not tenable due to multiple reasons. A field like turnover
limit not being made configurable in the first place indicated faulty design of
the system. Similarly PAN based turnover data not being used for validating
composition scheme indicates flaws in the way application was mapped with
the applicable provisions initially. The different crit
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ssible changes over a period of time.
3.7.2 Ineligible taxpayers allowed registration under CLS
(a)
As per Section 10(2) of CGST Act, the taxpayers engaged in following
activities were not eligible to opt for CLS : –
. inter-State outward supplies
. supply of goods through an Electronic Commerce Operator
(ECOM) who were required to collect tax at source under Section
52 of the CGST Act.
•
Supplies to or by SEZ units / developers (treated ¹7 as inter-State
supply).
A data analysis of 37,225 Composition taxpayers revealed that the data
contained 679 taxpayers belonging to the above categories (Inter-state
suppliers, ECOM, SEZ developers / units). GST IT System, thus, failed to
validate and debar these ineligible taxpayers from availing CLS.
GSTN had replied (January 2019) that the validations for Inter-state suppliers,
ECOM, SEZ developers and SEZ units from opting-in for composition scheme
was fixed and deployed to production on 29 June 2018 and that the data
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ed 27 June 2017 notified that
the registered person should not be eligible to opt for CLS if such
person was a manufacturer of the following goods: –
•
•
Ice-cream and other edible ice, whether or not containing cocoa
(Tariff Heading 21050000);
Pan Masala (Tariff Heading 21069020); and
• Tobacco and manufactured tobacco substitutes (Chapter 24).
GST IT system, however, did not restrict the manufacturers of the above goods
identified through HSN codes from registering as a Composition taxpayer.
GSTN had replied (January 2019) that validation on this account would be
implemented by July 2019 and that the approving authorities of the Centre
and the States were supposed to check such discrepancies at the time of
approving the registration application and get such errors rectified. GSTN has
further replied (June 2019 through DoR) that the necessary data captured at
the time of registration was indicative and in the registration module, the
system was captu
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ing process to
ensure that such critical deficiencies in application are
detected and rectified before rollout to public.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
3.8 Issues related to other categories of taxpayers
3.8.1 Other Notified Persons (ONPs) for allotment of Unique Identification
Number (UIN)
GST Acts provided for allotment of Unique Identification Number (UIN) to UN
bodies and Embassies to enable them to claim refund of GST paid on
purchases made by them. The Act also provided that the Other Notified
Persons (ONPs), as notified by various Central and State authorities, were
eligible to take registration under ONPS category for allotment of UIN.
Organisations like ISRO have been notified under this category. The following
discrepancies were noticed in respect registrations of ONPs.
(a)
PAN made optional for registration of ONPs
PAN of the authorised signatory was mandatory 18 for getting UIN under ONPS
category. Audit noticed tha
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was expected to be available by 30 September 2019.
For a category of Registration, which is permitted only
based on specific notification(s), not having a provision in
place to upload the notification at the time of registration is
a basic deficiency in the system.
18
19
As per the application form (Part-A) REG-13 under Rule 17 of CGST Rules 2017.
All four shards.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
3.8.2 Deficiencies in Online Information Database Access and Retrieval
Services (OIDAR)
As per Section 2(17) of IGST Act, 2017, OIDAR referred to services whose
delivery was mediated by information technology over the internet or an
electronic network and the nature of which rendered their supply essentially
automated involving minimal human intervention. These included services
such as advertising on internet, cloud services, digital storage, online gaming.
The following deficiencies were noted with regard to registration of OIDAR
taxpayer
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9) through DoR.
Regarding validation of TIN, GSTN had stated (January 2019) that single
authentic data source of TIN at international level was not available as it
varied from one country to the other. GSTN had also stated that the
functionality to upload document pertaining to TIN/or identity certificate and
credentials of authorised representative would be provided by June 2019.
Audit holds that in view of non-availability of any authentic data source of
TIN, it is even more important to have the facility to upload vital documents
needed for registering under OIDAR category. GSTN seeking so much time to
build-in this small but critical functionality, and DoR endorsing the same, is
unacceptable.
3.8.3 Deficiencies in Registration process of Tax Deductor at Source (TDS)
Section 51 of CGST Act 2017 stipulated that the Government might mandate
the following category of authorities/persons to deduct tax at the rate of one
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Report No. 11 of 2019 (Indirect Taxes – Goods
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ng the behaviour of applicants,
category (iv) was masked so that it might not be selected by the
applicant by mistake. They had also stated (January 2019) that all the TDS
registrants, who selected this option, were being advised by email to amend
the category as per law through the amendment process and that another
round of similar exercise would be performed after removing the drop down
menu.
20
The masking of category (iv) did not hold good now in view of notification
dated 13 September 2018, which notified specified autonomous bodies²º,
societies and Public Sector Undertakings under this category. Audit advised
(March 2019) that GSTN should re-consider the corrective action proposed as
the TDS provisions were made effective from 1 October 2018, including for
the categories notified under sl. no. (iv) of section 51.
Even though the Government notified certain organisations under the fourth
category of TDS with effect from 1 October 2018, GSTN replied in January
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eria incorporated in the search
condition.
GSTN agreed that it was a defect and stated that it had been fixed in
October 2018.
However, during verification (January 2019), we noticed deficiencies in the
search functionality even after the fix.
3.9.2 No option for different Languages on GST portal
Contrary to the SRS, there was no language option for taxpayers other than
English in the GST portal.
GSTN replied (January 2019) that on implementation of all the critical
functionalities, development and implementation of the multi-lingual support
would be taken up on priority and might be completed by October 2020.
Delay in implementation of Multi-Lingual Support meant increase in
compliance cost to the taxpayers who are not used to English language.
3.9.3 Registration for multiple business verticals
Taxpayers requiring separate registration for any of its business verticals
under the same PAN should submit a separate application in FORM GST REG-
01 in respect of each such
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mplemented by June 2019. GSTN further stated (June 2019)
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
through DoR that the same was under development and expected to be
implemented by September 2019.
Details such as PAN number were the same for multiple registrations. Non-
implementation of such a basic functionality resulted in losing basic
advantage of having an IT system.
3.9.4 Jurisdiction Mapping with PIN Code not enabled
During the process of filling up Part-B of registration, while selecting a State's
circle/ward, users were allowed to select any Central jurisdiction from all
over India. Ideally the State and Central jurisdictions must have been
mapped to each other and there should have been only one Central
jurisdiction for a specific State GST jurisdiction.
Data analysis also showed that there were large numbers of incorrect
jurisdictions. Out of about 14 lakh taxpayers registered in the State of UP, a
total 13,432 were either mapped with
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rect mapping of taxpayers were noticed by us during field audit
also, as brought out in paragraph 4.9.2 of chapter IV.
3.10 Findings accepted and corrective action taken or initiated
3.10.1 Technical glitches leading to delay in issuance of ARN and GSTIN, were
identified by GSTN based on audit objection, were partly rectified by GSTN in
January 2019. .
3.10.2 Issues regarding validation of key fields in Registration (Legal Name,
Type of Business and CIN) with CBDT and MCA Databases pointed out by
Audit were identified by GSTN and it was stated (January 2019) that the same
were expected to be rectified by March 2019. GSTN further stated (June
2019) in their reply forwarded by DoR that
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
•
•
•
Validation of Legal Name was expected to be closed by April 2019.
For validation of Type of Business, the communication for the same
has been sent by GSTN to the taxpayers and the list will be share
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ing with the audit
observation, stated that the data fix was expected to be completed by 31
January 2019. Further progress was awaited (June 2019).
3.10.5 There was no provision for raising an alert to the tax officer in case a
Non Resident Taxable Person (NRTP)/Casual taxpayer had not filed for
registration five days prior to date of commencement of business, as
required under Section 25 of CGST Act read with Rule 13(i) of CGST Rules.
GSTN implemented this feature with effect from 2 August 2018.
3.10.6 Based on audit observation, GSTN merged into one, the two separate
portals²¹ that existed for complaint / grievance redressal, without any specific
purpose for such separate portals.
3.11 Conclusion on Registration Module
Registration being the first step in tax administration and given the IT
intensive system that GST was designed to be, Ministry should have ensured
that a fool-proof Registration module was in place. The IT audit of
Registration module revealed tha
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ST provisions were
given effect in the IT system.
CBIC's reply to the IT audit findings was that the issues raised pertained to
GSTN and a reply should be sought from DoR. The fact remained that CBIC,
as a stakeholder of GST IT system, has a key role to play in proper design
and development of system by GSTN as well as in strengthening the system
by ensuring removal of deficiencies pointed out by audit. CBIC, being a part
of DOR, asking audit to seek a reply from DoR also points towards lack of co-
ordination between DoR and CBIC with reference to functioning of GSTN.
Audit found (May to October 2018) that certain basic validations were absent
in the GST Registration module, most of which has been in use since the
beginning of GST. The timelines initially indicated by GSTN in January 2019
to fix these validations were extended further in their reply sent through
DoR in June 2019. This shows that fixing these deficiencies was neither
prioritised by GSTN nor insisted by DOR
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schematically represented as below:-
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Chart No.11: Payment process for e-payments
13. Successful/ Failure on Browser
GST IT System
GST Portal
1. User clicks on make
Payment
on GST Portal
2. encrypted data to User's browser
9 b.browser redirects to GST Portal
3. Browser redirects
Bank IT System
9 a. Responds to user browser
Bank
Portal
12. Responds with
Success/failure
10. GST portal sends
data to process
GST Core
System
5. Calls validateCPINData(trxnld,hmac)
6. Responds with Success/Fail
11. Processes
4. Bank Portal sends
server to process
Bank
Server
8. Responds to portal
7. Bank Processess
The GST portal receives the e-scroll from RBI on the next day (T+1)²². The
portal carries out reconciliation between the e-scrolls received from RBI and
the challan details available on the GST portal and reports the reconciliation
results to the Accounting Authorities in Reconciled and Non-r
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the cash ledger of the taxpayer could be updated on a real time basis.
However, analysis of payment data showed that in 80,816 cases, the
payment date and the date on which the transaction was credited to the ECL
of taxpayer were different. There were delays of more than three days in
10,088 cases. Of these, the delays were to the extent of five days in 3,345
cases and of ten days in 1,228 cases.
GSTN had informed (January 2019) that in majority of cases, the ECL got
credited either on real time basis or via On-Demand-Calls made automatically
to the banks in case taxpayers closed the browser before the payment process
was completed.
However, despite all these arrangements, a few payments were still not
getting updated in ECL because of various reasons. The breakup of 10,088
transactions pointed out by audit where there had been delay of more than
three days, as explained by GSTN, had been given below : –
(i)
2,658 transactions related to the period prior to the date of r
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on-updation of their ECL, in spite of money being already
deducted from their bank accounts, defeated the objective of providing
timely credits to the taxpayer. It could lead to unnecessary demands being
made on a taxpayer to pay the taxes and hence the need to sort and settle
the payment system fully.
3.13.2 ECL getting updated without confirmation from banks
As prescribed in the Business Process for Payment, it was included in SRS that
the GST portal had to update the ECL of the taxpayer after confirming the
payment from the authorised banks. However, there were transactions where
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
CIN was reported by the authorised banks to the RBI but not to the GST Portal.
Audit noticed that in such cases, ECL was getting credited based on e-scroll
data from RBI without confirming the payment from authorised bank.
GSTN informed (January 2019) that the details were there in e-scroll of RBI
which meant that the tax amou
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decision on the matter even though this issue had
been flagged by GSTN in October 2017. No reply has been received from DoR
(June 2019) to this issue. Rather than continuing such an ad-hoc
arrangement, DoR has to set the process right by taking a decision to ensure
proper accounting and reconciliation.
3.14 Non-implementation of service requirements of banks
The Joint Committee for Business Process on GST Payment recommended the
following minimum service requirements for the banks, which had not yet
been implemented: –
There should be an assurance that all transactions credited to
respective CGST, IGST, Additional Tax and SGST Accounts were being
reported to RBI and no balances were left in these accounts.
New parameters of bank performance including timely remittance
and reporting of error-free data to all the stakeholders were to be
developed.
A system of incentives / penalties (on banks) was to be administered
by the respective Accounting Authority if defaults arose
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ad been continuing on
the part of authorised banks as explained in paragraph 3.13.
GSTN had informed (January 2019) that they took up this matter with the
Principal Chief Controller of Accounts (Pr. CCA), who, in turn, initiated
(December 2018) discussions to finalise the service/audit and other issues
related to the banks. GSTN further stated in their reply sent through DoR
(June 2019) that the payment success ratio for internet banking payment,
presented by GSTN in a meeting held in December 2018, has been circulated
to all the banks individually as per instructions of PCCA.
The shortcomings mentioned above pointed towards lack of coordination
between various agencies and inadequate monitoring on the part of Ministry
of Finance (MoF). MoF has to take up this issue on priority.
3.15 Non-reconciliation with accounting authorities
Payment data with the PCCA showed that receipt of 244 CINS pertaining to
2017-18 for an amount of Rs.3.58 crore and 136 CINS pertaining to April
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sign stage itself. Being directly related to tax payments,
these issues need to be rectified on a priority basis.
3.16 Non-acceptance of payment where payment details were
received after expiry of Challan
SRS for Payment Module envisaged a scenario where a payment was initiated
but no response was received from the bank and subsequently bank sent CIN
details after the challan had expired (i.e. for the expired CPIN). In such a
scenario, it was prescribed that the GST IT system should accept this payment
only if payment date was within the validity period of challan i.e. within 15
days from the date of challan generation.
Audit noticed that there were seven cases of e-payments and OTC (over the
counter payments) where the payment was initiated within 15 days (when
CPIN was active) but the payment was completed (CIN generated) after 15
days i.e. payment date was after the expiry date. However, GST IT system did
not recognise these transactions as successful payments. Non-cre
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The Control Total files shared with the Accounting Authorities did not create
'Record Level Total', 'Major and Minor Head Totals' and 'Checksums'. There
was a risk that in the absence of these system level controls, the
completeness and accuracy of transmission of files might not be adequately
validated.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
GSTN had informed (January and June 2019) that the payment module was
designed as per the approved Business Process Document and the BARM
(Bank Authorization Reference Model), which did not prescribe the control
totals. On approval of PCCA, the control totals, as suggested by the audit,
were expected to be implemented by September 2019.
Thus, basic application controls, required to ensure integrity
of data transfer, were not considered while designing the
system.
3.18 Payment through debit/credit cards not provided in the GST IT
system
The modes of payments specified in the GST Act included paymen
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of pinging, then
transaction status had to be kept as ‘Initiated' until a response was received
from bank/e-Scroll or Challan expired. In such a scenario, taxpayer had to
be displayed the message 'No response from the Bank'. However, audit
noticed that in case of no response from bank, system showed the status as
'Failed' instead of 'No response from the Bank'. If appropriate message was
not displayed, there was a risk that the taxpayer might initiate the payment
by generating another challan.
Similarly, on expiry of 15 days from the date of CPIN, the status of challan
was to be changed to 'Expired'. However, data analysis of sampled database
(Shard-1) revealed that status of 19,842 challans was shown as 'Initiated'
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
even after the expiry of the challan when ideally the challan status should
have been shown as 'Expired.'
GSTN had intimated (January 2019) that the change requirement for taking
care o
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acility of payment through Debit / Credit
cards could not be made available as Ministry had not decided on how to
deal with the financial implications.
Part C: IGST Settlement reports
3.21 The Provisions for IGST Settlement
Section 18 of the IGST Act specified that on utilisation of Input Tax Credit
(ITC) of IGST for payment of CGST or STGST/UTGST, the Central Government
should transfer the ITC amount from IGST account to CGST or SGST / UTGST
account in such manner and within such time as may be prescribed. Further,
Section 17 of the IGST Act provided that where ITC of IGST was rendered
ineligible for further utilisation for any reason or lapse (breaking of ITC chain),
the same should be apportioned between the Union and the States.
Central Government notified GST Settlement of Fund Rules, 2017 (GSTSF
Rule) to apportion the IGST amount between the Union and the States. As
per these rules, GSTN was to prepare the following 23 settlement reports and
transmit them to the ta
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tilised till specified period.
SGST/ UTGST portion of IGST collected on supplies imported by
unregistered persons.
SGST/UTGST portion of IGST for supplies imported by Composition
taxable persons/UIN holders.
SGST/UTGST portion of IGST collected on goods/services imported
by registered person (other than composition) where ITC is declared
as ineligible.
SGST/UTGST portion of IGST collected on goods imported by
registered person where ITC remains unutilised till specified period.
SGST/ UTGST portion of interest related to returns paid on IGST.
Monthly reports containing State-wise details containing list of
registered persons who have adjusted liability of Central Tax from the
ITC of Integrated Tax; this contains summary reports from table 2.02.
Monthly reports containing State-wise details containing list of
registered persons who have adjusted liability of Central Tax from the
ITC of Integrated Tax, as provided under section 18 of the IGST Act.
Monthly State-wise conso
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s from whom Integrated Tax has been
collected in respect of which POS made by taxable person could not
be determined, and is to be apportioned as provided under first
proviso of sub-section (2) of section 17 of the IGST Act
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Form
04.03
05.01
06.01
07.01
07.02
Form details
Details of Integrated Tax collected in respect of which the taxable
person making such supplies is not identifiable, and is to be
apportioned as provided under second proviso of sub-section (2) of
section 17 of the IGST Act and this shall be an annual report to be
submitted in October each year.
Monthly State-wise consolidated statement showing a summary
wherein Integrated Tax paid by taxpayer has already been
apportioned but subsequently refunded to the person.
Report of settlement arising between the Centre (Central Tax) and
the State (State Tax) or the Centre (Union Territory Tax) on account
of recovery of any tax, interest, pe
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analysed the settlement reports of Delhi State for the month of May
2018 to identify issues relating to IGST settlement. The issues identified were
further cross checked with the IGST settlement data on all India basis. Audit
found the following inadequacies in IGST settlement reports.
3.22 Incomplete IGST Settlement
It was noticed that IGST settlement for many transactions was not happening
as discussed in the following paras. This was partly responsible for
accumulation of huge unsettled balance under IGST, as commented upon in
paragraph 2.1.3 of Chapter II of this report.
3.22.1 Reports not being prepared
As of June 2018, out of total 23 STLS, GSTN included only 11 STLs 23 in the
reports transmitted to the tax authorities. Many of the remaining reports
23
GST STL 01.01, 01.02, 01.03, 01.04, 01.05, 01.06, 01.09, 01.12, 05.03, 05.07 and 07.01.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
could not be generated due to reasons like non-implementati
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gree of
accuracy if GSTR-2 and GSTR-3 were implemented.
GSTR-3B, being only the self-assessed summary return being
filed by taxpayers, the data in this return was not validated
with invoice details as originally envisaged since GSTR-2 and
GSTR-3 were kept in abeyance. Hence, the settlement of
funds between the Centre and the States using GSTR-3B was
based on data which was not validated.
GSTN further stated (June 2019 through DoR) that
. Report No. 01.07, 01.10 and 01.11, which were impacted due to GSTR-
2 being put on hold, will be generated based on annual return GSTR-9.
Generation of Report No. 01.08 has been started from February 2019
based on the data received from Indian Customs Electronic
Commerce/Electronic Data interchange Gateway (ICEGATE), (not
verified by Audit).
• Report No. 01.09 will be generated based on data received from
ICEGATE by July 2019.
Report No. 04.02 and 04.03 may not be required to be generated by
GSTN since DoR was taking care of the
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not being utilised
during settlement of IGST due to non-integration of GST System with the
ICEGATE system used by Customs. Similarly, the payments made under
Appeal, Refund and Prosecution for settlement of IGST were also not being
considered for preparing IGST settlement reports as required by SRS. Thus,
the IGST settlement reports were incomplete.
GSTN had stated (January 2019) that IGST data from ICEGATE had started
flowing to GST IT system since December 2018. Once the backlog data was
received in the GST IT system, the same would be used to settle the IGST paid
by unregistered persons / Composition taxpayers, which was likely to be
completed by 31 May 2019 for 2017-18. They further stated that in case of
IGST paid on import, claimed by the registered taxpayer as eligible ITC in
GSTR-3B, the same would be cross utilised subsequently and accounted for in
normal settlement process.
GSTN further stated (June 2019 through DoR) that Report No. 01.09 will be
generated base
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on apportionment of
Integrated Tax would also apply to the apportionment of interest realised in
connection with the tax so apportioned. The amount of interest, however,
was not being taken into consideration while doing settlement process of
IGST.
GSTN had stated (September 2018) that in the absence of processing of
GSTR-1, GSTR-2 and GSTR-3 returns, it was not possible to determine the
amount of interest due to be settled in favour of a particular State. GSTR-3B
had no such information to process settlement report of interest paid on IGST.
GSTN further stated (June 2019 through DoR) that work on Report No. 01.12
will be taken up after filing of annual return.
It would be pertinent to note that the IGST Act was
amended in August 2018 to facilitate apportionment of
such amount of unsettled IGST balance, as recommended by
the GST Council, to the Centre and the States on ad-hoc
basis. Incomplete IGST algorithm would result in continued
accumulation of higher balances in I
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fix in November
2018. It was also informed that the financial implication on account of this
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
defect for the previous periods would be taken care of by a separate
programme/utility which was likely to be completed by 31 March 2019.
In spite of the corrections made by GSTN, audit in its
verification in January 2019 noted that the issue of
duplicate records still persisted and 1,507 cases of duplicate
records were found in Settlement Reports 1.02 & 1.03 for
December 2018.
GSTN further stated (June 2019 through DoR) that defect has already been
fixed but its effect on previous months will be completed by end of June 2019.
The rectification remains to be verified by Audit.
3.24 Incorrect computation of IGST Settlement
As per the extant statutes, at the time of audit taxpayers may utilize the ITC
available in the credit ledger for discharging their tax liabilities. The following
general rule should be adhere
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018) by GSTN. GSTN further stated (June 2019 through DoR)
that missing records would be included in the settlement report of April 2019.
In the remaining 26 cases, GSTN attributed the incorrect values in the
Settlement Report to following reasons: –
•
In 23 cases, the manner/order in which ITC of IGST was required to be
utilised as per law was not followed.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
•
•
In one case, additional entry was posted for an excess amount in STL.
In two cases, negative liability was adjusted against the total liability.
Regarding order of utilisation of ITC, GSTN stated that while the order may
not have been as per norms, there is no financial implication due to the same.
The effect of such transactions are targeted to be included in June 2019
settlement period.
Thus sample data analysis of one month (May 2018) for Delhi alone shows
that the basic algorithm for settlement had defects leading to incorr
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.02
01.03
STL
01.02/01.03
Observation
These reports should include
taxpayers only from the States to
which reports pertain to. However,
these reports had 11,911 cases
related to the other States, involving
incorrect settlement of cross
utilisation of 198 crore.
Entries at an interval of 10,000 (viz.
Sl. Nos. 10000, 20000, 30000 and so
on) were found to be missing. Due to
this, summation of the entries did
not match with the sum total
mentioned in the report.
As
Reply of GSTN
(January and June
2019)
The defect has been
fixed on 31 January
2019 (To be verified
by audit).
Effect on previous
month's settlement
will be completed by
June 2019.
The defect had been
fixed (September
2018). It has no
financial implication.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Settlement Observation
Report
Category A
of STL 01.04
Categories E
and F of STL
01.04
settlement was based on sum total
of the report, this issue had no
financial im
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e
completed by March
2019.
When the matter
was placed before
the Law Committee,
they directed that no
such validation is
required in GSTR-3B
being self-assessed
and the CR is being
modified
accordingly.
non-
No accumulation of
IGST is happening
due to
implementation of
category E and F.
Taxpayer making
export with payment
of IGST are claiming
refund subsequently.
The refund is
processed
by
Customs department
directly.
No
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Settlement Observation
Report
Reply of GSTN
(January and June
2019)
settlement
is
STL 01.05
STL 01.06
This report should have included
transactions only pertaining to a
State other than the one for which
report was generated. However, it
included 1,713 records related to the
suppliers from the same State to
which the report pertained to,
involving incorrect settlement of
4.13 crore.
There was no entry against one
category of transactions (supplies to
no
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rs.
The defect has
already been fixed
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
Settlement Observation
Report
State who received inward supply
from other State. Hence, this
category should have included
taxpayers belonging to the State to
which report pertained. However,
this report contained 132 records of
Category 'A' where taxpayer
belonged to the State other than the
State to which the report pertained
to, involving incorrect settlement of
4.33 crore.
Reply of GSTN
(January and June
2019)
on 31 January 2019
(To be verified by
audit). Effect on
previous month's
settlement will be
completed by June
2019.
The deficiencies pointed out by audit on IGST settlement
cover a gamut of issues such as duplicate records, incorrect
computation of IGST settlement and erroneous entries in
settlement reports. This shows that the algorithm
determining IGST settlement is not correct and would mean
that proper testing was not done before runnin
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re allowed to claim ITC in GSTR-3B return without
any such cross-verification. Under GSTR-3B, ITC was claimed by the taxpayer
on self-assessment basis. Hence, in the absence of evidence that ITC was
being claimed by a taxpayer after payment of tax by the supplier, there was a
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
risk that the irregular ITC claims by the taxpayers might go undetected.
Certain instances noticed in audit in this regard have been detailed below:-
*8.19 lakh crore of ITC of IGST was claimed by the taxpayers in their returns
during 1 July 2017 to 8 August 2018 against total CGST, SGST and IGST of
11.93 lakh crore collected during 1 July 2017 to 31 July 2018. This meant
that ITC claimed was significant relative to tax collected.
Out of 8.19 lakh crore as stated above, taxpayers of Andhra Pradesh (State
code 37) alone claimed (19 July 2018) IGST-ITC for 6.49 lakh crore which
was considered as highly unlikely. This was brought to the
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) availed by the taxpayer in GSTR-
3B with the corresponding inward supply data. Under GSTR-3B, ITC was
claimed by the taxpayer on self-assessment basis. Further, they also stated
(January 2019 and June 2019) that since settlement was not made out of ITC
claimed but after cross-utilisation, such wrong claims did not affect the
settlement process.
It should be noted that GSTR-3B being a self-assessed return as of now
(June 2019), any ITC claimed erroneously could subsequently be cross utilised
and thereby enter the IGST settlement process.
3.27 Conclusion on IGST Settlement Reports
The IGST settlement algorithm was being run using incomplete sets of data
either due to non-implementation of related modules or due to non-
availability of data in case of returns kept in abeyance. To the extent the
settlement reports were generated, audit found various inaccuracies in the
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
a
algorithm. As these have a bearing
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t the recovery of its business processes after
a disruption. Disaster Recovery Plan (DRP), a subset of BCP, encompasses the
steps taken to implement and support the firm's infrastructure, including
hardware, software and sites necessary for the recovery of mission-critical
services and applications.
3.28.1 Business continuity policy not yet finalised
Any kind of disruption in functioning of GST IT System, even of temporary
nature, will severely impact the indirect tax administration of the country.
Hence a comprehensive policy of BCMS and its proper implementation are
very crucial for all stakeholders of the project.
We noticed that GSTN was still in the process of finalising the BCMS. The first
draft of BCP-disaster recovery policy was prepared in August 2017 and
updated in May 2018 but it had not been approved. Only the DRP was
finalised in May 2018, 11 months later after roll out of GST IT System.
GSTN had stated (January 2019) that BCMS plan was being refined and same
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ry Time Objective² (RTO) respectively for switch over data from DC-1
to DC-2 or vice-versa.
Our scrutiny of incident root cause analysis linkage report revealed that the
services of GST portal were affected 25 times during 1 July 2017 to 30 June
2018. Out of these, during four incidents, all the services of GST portal were
affected and server was down for the time ranging from 01:10 hours to 12:00
hours. The services were restored only after fixing the issue in DC-1 and were
not transferred to DC-2 as intended in the BCP since the secondary fall back
DC-2 facility was not ready.
Audit also noted that to test the readiness of DRM, GSTN performed two
mock drills 28 in June and July 2018. In the first mock drill, a total of 14 hours
50 minutes were taken against planned duration of six hours. The second
Mock drill took three hours in excess of the planned duration.
GSTN had stated (August 2018) that due to frequent changes in business
process, the system software in GST I
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RTO is the targeted duration of time and a service level within which a business process
must be restored after a disaster (or disruption) in order to avoid unacceptable
consequences associated with a break in business continuity.
The primary objective of the mock drill is assessing the readiness of the alternate Data
Centre to provide services in adequate time. It also assesses if the estimated time for
each activity is adequate. During the mock drill, application and monitoring services will
be failed over to the alternate Data Centre, however the same will not be made available
to public.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
attributed to issues in infrastructure. In such cases, the lengthy outage
period could have been avoided if the DRM was available, adequate and
functioning.
GSTN informed in Exit conference (December 2018) that DC-2 was fully
functional. However, the same remains to be verified in Audit. GSTN also
replied that as pe
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his for
nearly two years after rollout of such a critical application was an unmitigated
risk for the entire GST-ecosystem and its stakeholders.
Thus, GSTN was still in the process of streamlining the BCMS which remained
work-in-progress and the recovery time noted was not as per the intended
targets. Hence, disruption in service in primary DC might affect the GST
services causing inconvenience to all the stakeholders.
3.29 Change Management
According to the change management process, GSTN should create the
Change Request (CR) on the basis of new requirement from the Government
or deviation from approved SRS. The MSP should provide a CR document
with a sequential number of the CR containing the proposed change item,
description of the proposed change, including business impact, cost impact,
risk, training (if any), timelines of delivery of change and Service Level
Agreement (SLA's) for delayed delivery.
The impact analysis document should be prepared to identify the pote
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t process in GSTN
and noticed the following deficiencies: –
3.29.1 Timeline for activities not prescribed
Audit noticed that no individual timelines were defined for each activity/step
for below mentioned activities:-
•
•
.
Preparation, review & approval of CR and impact analysis documents
CAB or GSTN approval on the basis of cost
Implementation, testing and verification of CR
• Acceptance certificate
. Processing of invoice raised by MSP
As no time limits were fixed for the above activities, it was not possible to
ensure that CRs were being handled in a timely manner and to fix
responsibility in case of delay on part of the MSP/GSTN in implementing the
change.
GSTN had stated (January 2019) that RFP was drafted considering the
waterfall methodology for development of application software. However,
due to multiple changes in requirements from the Government, the Agile
methodology was adopted to continue the development. With this, GSTN was
deployi
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n along with delay, if any.
3.29.2 Impact analysis either retrospectively done or not done
Out of the 271 CRs reviewed, audit noticed that impact analysis was done
retrospectively in 168 CRs raised between 1 July 2017 and 22 February 2018.
Further, in 103 CRs, impact analysis was not done by December 2018. Audit
noticed that in only 112 CRs, cost analysis was done and in rest of the 159
CRs, cost analysis was yet to be done. Among the 112 CRs where cost
analysis had been done, 19 CRS involved costing more than five lakh and
hence needed approval of CAB. 14 CRs were approved by CAB post facto
(July 2018) and the remaining five CRs were yet to be given approval.
GSTN stated (January 2019) that impact analysis and approval of CAB started
in Phase 3 from February 2018 onwards in order to realise the effort spent in
implementing the CRs. An estimation framework was formalised with impact
analysis template to provide the details of effort and timeline of a CR. This
proposal was
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s was an anomaly in
RFP that the acceptance and completion certificates would be issued by CAB.
This was corrected by taking the approval from CAB in the meeting held on 14
December 2018, that change requester would provide the acceptance post
implementation of CR in production, as per defined Standard Operating
Procedure of Procurement & Contract department and Change Management
of GSTN. GSTN further stated (June 2019 through DoR) that the new
procedure defined has been mutually agreed between MSP and GSTN.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
It should be noted that if any shortcomings were to be
noticed in changes already made, there existed a risk of the
MSP absolving from their responsibility since they were
deemed to have received the Acceptance Certificate for the
change.
3.29.4 Lack of effective monitoring over CRs due to deficient documentation
Audit observed that there was no formal documentation and end to end
software solution
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imelines, and effective change approval, acceptance
and monitoring mechanism, Audit was not in a position to comment whether
the changes implemented met the desired standard and had led to the
intended outcomes.
GSTN further stated (June 2019 through DoR) that the change management
process has been revised in December 2018 to effectively manage the changes.
3.30
Conclusion on Business Continuity and Change Management
Any kind of disruption in functioning of GST IT System even of temporary
nature would severely impact the indirect tax administration and cause
inconvenience to all the stakeholders. Business Continuity Policy still being
work-in progress and a long disaster recovery time against a 30-minute
targeted recovery time, as reflected in the mock drills, pointed towards the
risks to the system in case of any disruption. Lack of a systemic approach to
change management indicated the crucial risks existing in the application
running on the GST portal.
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Report No.
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al Name, Type of
Business and CIN) with CBDT and MCA Databases.
The Payment Module, despite being in operation since 1 July 2017, was
fraught with operational deficiencies like: –
–
Delay in updating the ECL even after successful payment of tax by the
taxpayer.
Lack of assurance on minimum service requirements prescribed for
banks.
Issues in reconciliation of GST receipts.
Issues such as payment initiated before expiry of CPIN but CIN
generated after expiry of CPIN and incorrect display of messages to
taxpayers were not dealt with until pointed out by audit.
Facility of payment through Debit / Credit cards could not be made
available as Ministry did not decide on how to deal with the financial
implications.
All the IGST Settlement Ledgers were not being generated due to non-
implementation of corresponding GST modules, e.g., imports and appeals.
This, coupled with the inaccuracies in the settlement algorithm and limitation
of the GSTR-3B return in capturing all the i
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urable.
No alert was issued when the threshold of turnover prescribed for
Composition Levy Scheme was crossed.
Business Continuity Policy was not finalised and only Disaster Recovery Plan
had been in place. The Disaster Recovery drills took longer than the 30-
minute targeted recovery time. These pointed towards the risks to system in
case of any disruption.
Lack of a systemic approach to change management, coupled with some of
the deficiencies pointed by this audit remaining unaddressed even after GSTN
reported corrective action, indicated the crucial risks existing in the
application running on the GST portal.
While acknowledging that GST is a complete new system being developed,
the fact remains that in view of its magnitude and Pan-India impact, it is all
the more necessary that due care is taken both in development and in
testing of the system before roll out. The failure to map business rules
correctly and the absence of key validations in the rolled out system poi
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ng Standards issued by the
Comptroller and Auditor General of India.
4.1
Lack of access to data
GST is envisaged as a highly IT-intensive system of tax administration with a
single interface for taxpayers across the country for their GST compliance
functions. With all the steps in tax collection right from challan generation to
accounting of receipts and from registration to return filing / scrutiny being
automated, it provides a good opportunity for the first time ever to the
Government and the Parliament to have a full assurance 29 from the CAG on the
correct implementation of tax laws. In a manual system, audits were done on
“test checks” and there were limitations in providing assurance. Unhindered
and full access to pan-India data is crucial for meaningful audit and to draw
assurances, otherwise certifying the revenue receipts may become difficult. In
this background, and in view of the need for data analysis in audit of GST, the
office of the CAG took up the matter
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t need to be addressed by the
department.
29
'expressing a conclusion designed to enhance the degree of confidence of the intended
users other than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria'
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
4.2
Audit examination
The GST return mechanism has been undergoing major changes since
implementation of GST. The due date for filing annual return for 2017-18 by
December 2018 originally was subsequently extended to August 2019.
Hence, during the year 2018-19, we focused mainly on audit of transitional
credits, registrations and refunds.
The findings on each of the identified areas are given below in three parts: –
Part A: Transitional credit
4.3
Introduction
With the introduction and implementation of GST, which subsumed multiple
indirect taxes, there was also a need to clearly spell out provisions and
arrangements to ensure smooth transition
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des for a registered
person, other than composition taxpayer, to carry forward closing balance of
input tax credit under Central Excise and Service Tax Act as CGST and input
credit under State VAT Acts as SGST, subject to specified conditions. The
important conditions are discussed below: –
a) Credit can be carried forward as given in the last return filed under
pre-GST statutes
b) Such credit should be admissible as ITC under GST Act and pre-GST
Acts
c) Returns for at least previous six months before roll out of GST should
have been furnished.
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
A registered person, not liable to be registered under the pre-GST law, or
who was dealing with exempted goods / services or a first / second stage
dealer or a registered importer or a depot of a manufacturer, is also entitled
to carry forward credit of eligible duties in respect of inputs held in stock and
inputs contained in semi-finished or finished goods held
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r extension of this ninety day period by a further period not
exceeding ninety days by the Commissioner, on recommendation of the GST
Council. Thus, the CGST Rules initially provided for a maximum of 6 months to
file Tran-1. However, to facilitate those taxpayers who could not file Tran-1
by the due date on account of technical difficulties on GST portal, a provision
was inserted³º in this rule for extension of date for Tran-1 by a further period
not beyond 31 March 2019, on the recommendations of the Council.
4.4.3 Due date(s) for filing Tran-1
The due date for filing or revising Tran-1, which originally was 28 September
2017 has been extended from time to time with final deadline extended to
31 March 2019 as detailed below: –
Date of Extended due Reason for extension
Order
date
18 and 21 31 Oct 2017
Sep 2017
28
Oct 30 Nov 2017
2017
30
The due date for submission of Tran-1 return
was extended to facilitate revision of Tran-1.
No specific reason was found fo
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could not complete the process of Tran-1 filing either at the stage of original
or revised filing as they could not digitally authenticate the Tran-1s due to IT
related glitches. As a result, a large number of such Tran-1s were stuck in the
system. GSTN was asked to identify such taxpayers who could not file Tran-1
on the basis of electronic audit trail. It has been decided that all such
taxpayers, who tried but were not able to complete Tran-1 procedure
(original or revised) of filing them on or before 27 December 2017 due to
IT-glitches, shall be provided the facility to complete Tran-1 filing.
The technical glitches and delays in making Tran-1 available on
GST Portal has led to repeated extension of due date for filing
the return Tran-1.
4.5 CBIC instructions for verification of transitional credits
CBIC issued instructions from time to time during September 2017 to March
2018 regarding verification of transitional credits by its field formations as
detailed below:-
i
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Tax
Offices would verify transitional credit claims in respect of CGST in
case of all taxpayers irrespective of whether the taxpayer was allotted
to Central or State Tax Office. CBIC also shared the list of identified
50,000 cases of CGST credits along with datasets with Central Tax
Offices and asked them to complete verification of 1/3rd of cases
assigned in each quarter starting from March-June 2018 and ending in
Jan-Mar 2019.
Leveraging IT for verification of transitional credit claims
Prior to introduction of GST portal, the department has been using the IT
application “Automation of Central Excise and Service Tax” (ACES) through
which filing of returns, payment of duty/tax and processing of returns
relating to Central Excise and Service Tax were carried out. Hence, the
department had a database relating to returns filed by taxpayers in respect of
goods manufactured / services provided and the details of Cenvat credit
closing balance and other details availabl
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would be shown on
dashboard of departmental officer viewing Tran-1 and a red tick
would appear in case the validation failed.
4.7 Audit of transitional credits
Given the importance of transitional credits, being a one-time activity during
transition to GST and its impact on revenue inflows in GST regime, we
focussed on verification of transitional credit cases by CBIC field formations
during our field audit in 2018-19.
To conduct data analysis and identify areas of focus and to select units /
cases for audit, we requested (April 2018 and June 2018) CBIC to provide data
relating to transitional credits and sought (December 2018) transitional credit
data of selected fields. The requisitioned data has not been provided by
CBIC and even the readily available data sets relating to the 50,000 cases
identified by CBIC have not been made available to us.
In absence of data, we carried out a limited audit of transitional credit claims
in the units which we selected for audit bas
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ct.
Audit found inadmissible claims in cases already verified by the department
and where the data validation results should be available with the
department and the tax officer. This showed that despite CBIC taking steps
of issuing circulars and providing data sets and validations to assist tax
officers to verify transitional credits, all available details have not been fully
utilised for validation and even the available leads have not been effectively
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Report No. 11 of 2019 (Indirect Taxes – Goods and Services Tax)
used by the tax officers or monitored by CBIC.
Audit's suggestion of
leveraging IT to identify inadmissible credits and address the same at central
level through automated system is more from the point of view of Business
Process
Re-Engineering to effectively assist tax officers to discharge their statutory
functions.
4.7.1 Overview of audit of transitional credits
We focused on verification of transitional credit cases by the department
during our
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